Startup Founders: Don’t Forget to Sell the Dream

I’ve been speaking with some Y Combinator hopefuls as they prepare to interview for this coming batch. As usual, there are some really enthusiastic and super smart folks working to solve really interesting and important problems.

I love taking these meetings because I get to get back to the community that has supported me plus I learn a ton in the process. For instance, it was from all these meetings last time around where I wrote my most popular post of 2012: 11 compelling startup pitch archetypes.

This post addresses a very specific piece of the startup pitch: selling the dream.

The Final 10%

The vast majority of your pitch should be around the mechanics of your business: your customers, your product, your team, your distribution strategy. This is what’s going to make you successful: competent people who really understand the needs of their users and who have the ability to create the right product to address those needs and get it into the hands of their users.

Two of the companies that I’ve spoken to were missing that part of their pitch. They had identified a market segment which had a burning problem, and their products all that problem, and they had good specific strategies to acquire those customers. This is a great start. [2]

But they were missing that aspirational story.

Give Them Something to Dream About

You might think that investors simply invest to make money. And of course, that is a very big part of what they do. They have their own investors in the form of limited partners (LP’s) and are expected to deliver significant returns on huge sums of money.

But startup investors understand that a tiny handful of their portfolio will return most of the gains. Three-quarters of Y Combinator’s portfolio company valuation comes from two companies: Airbnb and Dropbox. And Paul Graham himself had this to say:

When you interview a startup and think “they seem likely to succeed,” it’s hard not to fund them. And yet, financially at least, there is only one kind of success: they’re either going to be one of the really big winners or not, and if not it doesn’t matter whether you fund them, because even if they succeed the effect on your returns will be insignificant. (from Black Swan Farming)

A founder who wants to raise capital from a professional investor needs to instill the sense that there may be a chance this company could be fucking massive. Because a reasonable shot at base hit or double isn’t enough. There has to be a chance this thing is a major home run. And since investors tend to have a bit less creativity and optimism (or they’d be entrepreneurs themselves) they need some help seeing that dream.

Case Study: Airbnb

Airbnb started out by letting people rent out floor space with inflatable airbeds for people to stay during conferences. Eventually it grew to helping people with an extra room or whole apartment offer that place for travelers looking for unique and affordable housing. Now you can imagine a very boilerplate startup pitch that goes something like:

“There are X million people in the US and XX million globally who have extra rooms in their house or extra homes that they keep. They’d love to make more money from that space. Meanwhile, the hotel industry is XX Billion. We think we can take X% of those travelers and direct them to our hosts and make XXX million dollars annually.”

It’s a solid pitch but completely without any aspiration or magic. Now of course, Airbnb has done a bang up job of positioning themselves so that is not at all their (admittedly customer-facing) pitch. Their section on “Live a Richer Life” captures the aspirational elements of Airbnb as a host. [3] But imagine what the sexy, magical version of the Airbnb pitch might have been:

“Airbnb enables people to live richer lives, where their extra space allows them to be with their children, take more vacations and save for retirement. We transform travel accommodations from cold, sterile rooms to amazing experiences with locals in unique spaces. How will we become a billion dollar company? Airbnb will host more travelers than the entire Hilton hotel chain with 5,200 locations around the world, without having to manage a single piece of property. We will be the future of travel.”

It’s a little different right? It’s much more than just making money. An investor, like a founder, wants to be a part of something that is really going to change the world. Something to be proud of. Something that they can say “Yeah, I invested to those guys/gals when they were just getting started because I saw the potential in what they could create and the impact they could have on the world”

Now again, I want to emphasize that 90% of your pitch should be about the nitty gritty of your business. But don’t fail to include that 10% of a dream.

[1] Hint, this question should not be taken literally. It is not “We will reach 1M customers paying us each $80 a month.”
[2] I wonder if maybe their focus on business need and revenue opportunity was shaped by the “if your startup doesn’t make money, you are screwed” mindset held by many as a backlash (perhaps rightly so) to a lot of the free apps out there.
[3] And in fact, that is the top result for the Google search for “Live a Richer Life“

[…] but I still find interesting even though I’m a total corporette. He wrote a post titled Startup Founders: Don’t Forget to Sell the Dream. Read the example pitch he gives for Airbnb and some parting thoughts below. But click on the link […]

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